Bank Reform Could Discover The Actions Of The Plunge Protection Team

Legislation that authorizes the government to conduct a one time audit of the Federal Reserve's emergency-response programs was approved unanimously by the Senate on the 11th of May, 2010. This legislation is a portion of the overall bank reform legislation. As a result of this legislation, Sen. Bernie Sanders stated that, "This makes it clear that the Fed can no longer operate under the kind of secrecy it has been operating under."

The legislation requires the Government Accountability Office (GAO) to audit the financial institutions that borrowed from the Fed during the financial crisis. The legislation also gives the GAO leeway to conduct continuing periodic audits of the Fed's activities.

Why was the Fed so adverse to having this audit? Could it be that one of their unpublished activities is their direct involvement in the Plunge Protection Team (PPT)?

In January, Charles Biderman, chief executive of TrimTabs Investment Research, charged that the Fed and the Treasury (in conjunction with top Wall Street firms) rigged the stock market rally on a daily basis. Biderman said that a $6 trillion increase in U.S. stock-market capitalization could not be explained from the normal funds flowing into the market. "We cannot identify the source of the new money that pushed stock prices up so far so fast," Biderman said. Biderman went on to say that the inflow didn't come from traditional sources such as companies, retail investors, foreign investors, hedge funds or pension funds. "We know that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers. Why not support the stock market as well?"

The Fed denies PPT participation or even that a PPT exists. Yet they have long been known to be a major player in the PPT. When the Fed is audited, they suddenly will be mandated to account for how the underlying funds they control were used, where the funds go each day, to whom, how much and how often. If the Fed was truly responsible for artificially propping up the stock market because of their undercover activities in the PPT, this will now be visible with the audit.

The stated purpose of the Plunge Protection Team was to prevent another instance of 1987 "Black Monday". The PPT has the U.S. Treasury at its beck and call. They can manipulate the stock markets through derivative trading. Wikipedia explains derivatives as "a financial instrument - or more simply, an agreement between two people or two parties - that has a value determined by the price of something else (called the underlying)." As early on as 2001, the Guardian stated using derivatives, the Fed was prepared to artificially support Wall Street. "A secretive committee - the Working Group on Financial Markets, dubbed 'the plunge protection team' - includes bankers as well as representatives of the New York Stock Exchange, Nasdaq and the US Treasury. It is ready to co-ordinate intervention by the Federal Reserve on an unprecedented scale."

Should there be evidence of panic selling, the fed supported by the banks, will buy equities from mutual funds, pension funds, and other institutional sellers.

The PPT used the assets of the U.S. Treasury to artificially change the prices of commodites and stocks through derivatives that it manipulates. On March 18, 1988, Executive Order 12631 was signed by Ronald Reagan authorizing the Fed to establish a "Working Group" on Financial Matters. the "Working Group" consists of 1) the Secretary of the Treasury 2) the Chairman of the Board of Governors of the Federal Reserve 3) the Chairman of the Securities and Exchange Commission 4) the Chairman of the Commodity Futures Trading Commission. This "Working Group" has now been extended to include large brokerage firms such as Goldman Sachs.

John Crudele of the New York Post wrote in February, 2010, "the PWG (President's Working Group) could have encouraged the misconception that the stock market was a lot less risky than it really was. In that sense, the PWG would have been instrumental in inflating the stock bubble that burst in 2008, costing a lot of Americans their savings. The PWG operates in total secrecy. It's been suspected that under Hank Paulson, the former chairman of Goldman Sachs who left the Treasury secretary post last year, Wall Street kingpins were brought into the circle. The reasoning: Market participants, as Paulson liked to call them, could best help fix problems. At the same time, they would be free to use these invaluable connections with the PWG for their benefit as well."

Surprisingly, the Fed is now about to be audited by the GAO. This will expose the the Plunge Protection Team. What can this signify to the stock market? Does it signify that finally the stock market will have to stand on its own two feet, make it or not, without being propped up by the Treasury and without the approval of the US taxpayer. Former Federal Reserve Board member Robert Heller insisted that "Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market (through derivatives), thereby stabilizing the market as a whole."

The Senate and House bank reform bill that was just passed limits usage of derivative trading, the main tool of the Fed and the PPT. "We are sending a clear message to Wall Street, the party is over. Never again will reckless behavior on the part of the few threaten the fiscal stability of our people," said House Speaker Nancy Pelosi. "The legislation will finally protect Main Street from the worst of Wall Street."

Isn't this the reason the Fed opposes bank reform, especially given the section concerning Fed oversight?


Article Source: FxTradingStock.com

About the Author

Barbara Cohen has been a professional day trader for over 10 years. She has trained hundreds to trade the Futures Market with Shadowtraders day trading system. As the CIO, Barbara moderates Shadowtraders daily online trading chatroom. Before you purchase any trading software, make sure you attend Shadowtraders Monday Night Webinar, and hosted by Barbara Cohen

by: Barbara Cohen

Total views: 53 Word Count: 973 Date: Wed, 26 May 2010

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